Investors looking to maximise their returns need funds built for growth in their portfolio.
Typically, these funds will focus on equities and may include racier assets such as emerging markets or small-cap stocks, which have the ability to grow at a much faster rate than their large-cap counterparts.
Investors looking to grow their money should be sure to consider their risk appetite and how much volatility they can stand, rather than just picking the funds with the greatest potential returns. But for younger investors with a long time horizon, there is time to ride out the ups and downs along the way. We look at some funds that might fit the bill.
Baillie Gifford Global Discovery
The Silver-rated Baillie Gifford Global Discovery fund is “not for widows and orphans”, warns Morningstar analyst David Holder. The fund looks across the world to find immature, ambitious and entrepreneurial companies that are looking to scale up to a global level.
It’s a bold fund for brave investors who don’t mind a potentially bumpy ride – such companies often don’t have a smooth path to success and there could be failures along the way, which can hit returns. But companies which do succeed can bring bumper returns.
Launched in 2009 and managed by Douglas Brodie since 2011, the fund has delivered an impressive 17.5% annualised return over the past five years – easily outstripping its target of beating the S&P Global Small Cap Index by 2% a year.
It makes good use of Baillie Gifford’s team of more than 100 investors across 18 different desks to find opportunities across the globe. Currently two-thirds of the assets are in the US and 12.6% in the UK. Top holdings include online retailer Wayfair, Ocado and US loan comparison site LendingTree. Holder says: “The strategy is unapologetically ‘growth’ in style and is an ideal option for those who are ready to take the risk.”
JPMorgan Emerging Markets
Recently upgraded to Silver by Morningstar analysts, the £1.6 billion JPMorgan Emerging Markets fund has delivered an annualised returned of 9% over the past 10 years.
Emerging markets are not a choice for the faint-hearted, as they often endure sharp swings up and down as the fortunes of the various countries that make up the region ebb and flow. Currently, there are concerns about Argentina’s economy and a slowdown in China, for example.
But manager Leon Eidelman has consistently outperformed other funds in the Morningstar Global Emerging Market Equity category. Morningstar analyst Andrew Daniels says he is “a savvy investor, who has been able to stick to his knitting during challenging periods”.
The fund looks for companies with strong balance sheets and good management teams, operating in industries where there are limited external risks. Currently half of the portfolio is in Asian equities including Chinese internet giant Tencent and insurance group AIA. A further 15% is invested in Latin America including Brazilian e-commerce site MercadoLibre. Also among the biggest holdings is Russian bank Sberbank, one of the world’s biggest dividend payers.
Daniels adds: “While the fund slightly lagged its benchmark in the sell-off last year, it’s encouraging that Eidelman topped up or initiated stakes in several lagging Chinese stocks at this time, which contributed to sharp bounceback in the first quarter of 2019.”
Fidelity Emerging Asia
Manager Dhananjay Phadnis slashed the number of holdings in the Fidelity Emerging Asia fund from around 200 to between 60 and 80 when he took over the strategy in November 2013, making this portfolio a lot more concentrated than it used to be.
The current list of investments represents his best ideas and those in which he has strong conviction. Morningstar analyst Andrew Daniels says the manager has “intimate knowledge” of the names inside his portfolio – as well as those he chooses not to invest in – and believes Phadnis is “one of the best Asia equity managers”.
Fidelity Emerging Asia focuses on the Asia Pacific region, excluding Japan, with investments across China, India, Hong Kong and Korea. The fund has comfortably outperformed both its benchmark and many peers, delivering an annualised return of 12.8% over the past five years.
Holdings such as India's Power Grid tap into the growing demand for infrastructure in these emerging economies, while China Pacific Insurance and AIA are financial services firms that benefit from the region’s growing wealth and expanding middle class.
Daniels like the fund’s “funnel approach” to picking investments, with a focus on companies with economic moats, quality management and attractive valuations. “He is able to clearly articulate why each holding meets all requirements for inclusion in the portfolio,” adds Andrews.
